Let’s Create an Innovation Index

Submitted by Mark Adkins on Fri, 07/23/2010 - 2:45pm

The idea of launching an “Innovation Index” has been discussed many times within PDMA—including discussions at a formal workshop held by the Board of Directors several years ago. PDMA has led a number of benchmarking efforts, such as the Comparative Performance Assessment Study. Now, with innovation continuing to grow in importance both in the U.S. and abroad, PDMA’s VP of Marketing, Mark Adkins, has come up with a variation of this idea that addresses both product and service innovation. Here are the details….

There are numerous studies and indices that touch on the Research and Development (R&D) or product and service innovation areas. But they do not provide the kind of reliable, actionable information individuals and companies need to guide their product and service development activities. In particular, do they give us that real-time snapshot of the health of U.S. innovation?

The reality is we have a proven model sitting right in front of us. It is the Purchasing Managers’ Index (PMI). This index is an indicator of the economic health of the manufacturing sector. The PMI has been issued since 1948 by the Institute for Supply Management. The data for the index is collected through a survey of 400 purchasing managers on five different fields: production level, new orders from customers, speed of supplier deliveries, inventories, and employment level.

Respondents can report better, same, or worse conditions than previous months. The PMI report is an extremely important indicator for the financial markets in that it is considered the best indicator of factory production.

Let me propose that PDMA spearhead the design and launch of the Product & Service Index (PSI IndexTM) along the same lines as the PMI. In it we would survey a number of companies on a monthly basis, but rather than asking questions on production levels or new orders, we would probe the following five areas:

• Number of new projects initiated
• Number of active projects
• Number of projects terminated or halted
• Number of people employed on NPD teams
• Number of new product or services launched

Well, what do you think? Does our nation need a real innovation index that will keep our profession’s work in front of our government and business leaders?

Comments

by Mark Adkins - 08/08/2010 - 10:38am

Srinivas, I agree that

Srinivas,

I agree that “Innovation” needs definition for this project. From a PDMA perspective we are definitely talking about the development and launch of new products and services.

We would exclude business model innovation, joint ventures, strategic alliances etc. We would also exlude new business formation. All of these are valuable ways to grow but in my opinion it would dilute the value of the Index…

Thanks,
Mark

by Sirinivas - 08/07/2010 - 12:30pm

Another factor that can be

Another factor that can be added at a company level:
1) % of sales contributed from New Products.
2) % of Revenue invested in NPD

It goes without saying, that the terms “new products” & NPD need to be defined appropriately. There are many other factors which foster Innovation like adoption of Idea genrations both within and out side the organisation, Tie ups with academia .

Innovations also happen in the form of new business models aprt from just new products.

by Mark Adkins - 08/06/2010 - 2:04pm

Jack, I missed your post when

Jack,

I missed your post when I was send out mine yesterday.

My concern with your approach is 1) the questions become more difficult to answer and 2) we’re getting away from measuring activity. Measuring results is more a function of traditional benchmarking studies like PDMA’s CPAS or the recent study that McKinsey did on NPD Success.

So to use the PMI example – we look at that index number to know if manufacturing is expanding or contracting. There is no way that number tells us anyting about how efficient or cost-effective mannufacturing is. Our Innovation Index number would simply measure the level of activity.

BTW, I’m not saying the five questions I proposed are the right ones but I do not want to duplicate a lot of best practices benchmarking work that is done all the time by many organizations.

So, is there a value to a monthly measure of product and service innovation activity? Would anyone care?

Regards,
Mark

by Mark Adkins - 08/05/2010 - 2:50pm

Colleagues, Thanks again for

Colleagues,

Thanks again for these posts.

I think Jason hit the nail on the head by staating that we would not measure results but rather “level of activity” and we are looking for “change” not specific data so companies can participate without providing raw, company specific data.

I’d ask everyone to forward this discussion onto others to help refine our thinking and (if its a good model) lay the groundwork for recruiting volunteers to help with the design, distribution and collection of the information.

One more question. Any reason this model wouldn’t work for any national economy? I think this project could be communicated globally by PDMA…

Thanks,
Mark

by Jack Hipple - 08/05/2010 - 1:38pm

I do not understand the

I do not understand the apparent fascination with counting numbers of things that get started and then also counting the number of things killed. The comment about ROI is spot on. We need to measure whether we are working on the right things, not how many things we are working on or stopping. SOme suggestions:

  1. What % of our projects/money are designed to replace ourselves?
  2. What is the trend of % projects/money which “failed” (for any reason) over time? Going up or down?
  3. What % of our projects/money is being spent to improve our products’ performance by less than 10%? Is this going up or down?
  4. What % of our projects/money is being spent on reducing cost of product manufacture by more than 30%?
  5. What % of our projects/money has resulted in seriouis patent protection? Is is going up or down?
by Gopi Vulava - 08/05/2010 - 10:50pm

2 more areas come to my mind

2 more areas come to my mind in developing a comprehensive index
- % NPD effort in front end activities
- Number and % of launched new products or services meeting objectives

by Jeffrey Alexander - 08/05/2010 - 9:11am

If the point of the index is

If the point of the index is to be something similar to PMI, then you don’t have to integrate metrics on the results of innovation (just as the PMI doesn’t measure the ROI on corporate procurement activities). The index would be a measure of the level of activity or level of resources devoted to innovation. Therefore, funding levels for those investments ($ spent) would probably be an important element of the index, along with # of projects, people, and new products/services.

The idea also is just to get information on the relative CHANGE in the index between periods, so you don’t have to ask for specific numbers–just whether the numbers for a particular organization surveyed have changed from the previous period, and by how much (relative to the base index level). So, you could probably convince respondents that they wouldn’t be releasing highly-proprietary data. Seems like a do-able proposition…?

by John S - 08/05/2010 - 12:24pm

Mark, For an economic model,

Mark,

For an economic model, it may be important to include and estimate of the macro Research and Development spend, perhaps as a ratio of GDP. This even as an independent variable can be compared to other nations/regions. So, looking at inputs (raw materials, e.g. spend) and outputs (e.g. projects & successes) would be components. As a national model, both prive and public sector spend could be considered, perhaps factored in seperately for comparative values to other countries.

John

by Mark Adkins - 08/04/2010 - 2:11pm

Thanks for everyone’s

Thanks for everyone’s feedback.

Glenn, I have that article from the Innovator’s Guide and actually worked with one of the authors (Liz Altman) as part of the FEI Conference last May. I chaired the track on Innovation Metrics and it was during my prep work that I became interested in this Innovation Index idea.

One point I would make is we are not suggesting a set of metrics for an individual company but a metric to measure the level of product and service innovation for an entire economy. One day we would benchmark nations, not companies.

My final point is wouldn’t it be interesting during the next recession to see which nations continue to invest in new products and services and which nations hit the brakes???

Thanks,
Mark

by Glenn M - 08/04/2010 - 12:20pm

I like the idea of a

I like the idea of a comprehensive index. On a company level, this topic is addressed in “Innovation Metrics,” a Harvard Business article that is excerpted from Innovator’s Guide to Growth: Putting Disruptive Innovation to Work by Anthony, et. al. Although the article does not settle on one specific list of metrics, it does provide some guidance and caution on selecting appropriate metrics. I think this would be a good starting point.

Whereas the input for the ISM PMI comes from a fairly well defined role within an organization, understanding who to survey may be more difficult for an innovation index.

I would certainly be interested in helping develop and launch this effort.

by Neal Hill - 08/04/2010 - 10:22am

We would gladly provide data

We would gladly provide data but perhaps quarterly rather than monthly and you’d probably want to gather information on the type of company e.g.we are an instrumentation company with hardware, embedded firmware and PC software. The data would serve as a useful benchmark.

by Ray W - 08/04/2010 - 10:10am

The five areas proposed are

The five areas proposed are great but they do not address the ROI on new product initiatives. I suggest we add an area to define the success and payback on any new product or service to the index

by Ryan L - 07/25/2010 - 2:28pm

Great Idea, this would

Great Idea, this would provide some quite interesting information.